Is Zimmer Biomet Holdings Inc (ZBH) Going to Burn These Hedge Funds?

·5 min read

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to the smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Zimmer Biomet Holdings Inc (NYSE:ZBH)? The smart money sentiment can provide an answer to this question.

Zimmer Biomet Holdings Inc (NYSE:ZBH) has experienced a decrease in support from the world's most elite money managers in recent months. Zimmer Biomet Holdings Inc (NYSE:ZBH) was in 47 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 64. There were 48 hedge funds in our database with ZBH positions at the end of the second quarter. Our calculations also showed that ZBH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we're going to take a look at the latest hedge fund action surrounding Zimmer Biomet Holdings Inc (NYSE:ZBH).

Dan Loeb THIRD POINT
Dan Loeb THIRD POINT

Dan Loeb of Third Point

Do Hedge Funds Think ZBH Is A Good Stock To Buy Now?

At the end of September, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the second quarter of 2021. On the other hand, there were a total of 55 hedge funds with a bullish position in ZBH a year ago. With the smart money's capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Viking Global held the most valuable stake in Zimmer Biomet Holdings Inc (NYSE:ZBH), which was worth $499 million at the end of the third quarter. On the second spot was Third Point which amassed $131.7 million worth of shares. Camber Capital Management, D E Shaw, and OrbiMed Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Freshford Capital Management allocated the biggest weight to Zimmer Biomet Holdings Inc (NYSE:ZBH), around 4.44% of its 13F portfolio. Camber Capital Management is also relatively very bullish on the stock, dishing out 3.27 percent of its 13F equity portfolio to ZBH.

Judging by the fact that Zimmer Biomet Holdings Inc (NYSE:ZBH) has faced declining sentiment from the smart money, it's easy to see that there was a specific group of hedgies that elected to cut their full holdings last quarter. Intriguingly, Brian Ashford-Russell and Tim Woolley's Polar Capital cut the largest position of the "upper crust" of funds followed by Insider Monkey, valued at close to $61.2 million in stock, and James E. Flynn's Deerfield Management was right behind this move, as the fund dropped about $54.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). We will take a look at Chunghwa Telecom Co., Ltd (NYSE:CHT), Southwest Airlines Co. (NYSE:LUV), XPeng Inc. (NYSE:XPEV), Equity Residential (NYSE:EQR), Keysight Technologies Inc (NYSE:KEYS), Sun Life Financial Inc. (NYSE:SLF), and D.R. Horton, Inc. (NYSE:DHI). This group of stocks' market caps resemble ZBH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHT,6,156827,-1 LUV,39,729508,-10 XPEV,25,657189,6 EQR,32,558805,1 KEYS,30,675201,-2 SLF,8,81688,-3 DHI,51,2184785,6 Average,27.3,720572,-0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $721 million. That figure was $1665 million in ZBH's case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 6 bullish hedge fund positions. Zimmer Biomet Holdings Inc (NYSE:ZBH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZBH is 71.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately ZBH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ZBH were disappointed as the stock returned -18.3% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.

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